If the Board of Directors at GM and Ford want to pay their CEO a billion dollars a year to run their companies into the ground facilitate their turnaround, far be it for me to tell them they should do otherwise. But if you're looking for a reason why these two automakers are on an engine out terminal approach, clock those annual pay packages and remember that they are the tip of the iceberg of over-paid unaccountability. Add in the rest of their executives' compensation and you have a culture of entitlement that makes Moctezuma's priests seem like chimney sweeps. The info [via The Detroit News] raises at least two important questions. First, why were we thinking that GM CEO Rick Wagoner earned $14.4m last year ($1.3m less than today's report)? Second, what was all that about Ford CEO Alan Mulally's pay being front-loaded to account for the fact that he left Boeing behind? Big Al's '07 $22.7m comes after last year's $28.2m. I make that $51.4m for two year's work. There are lot of other ways to crunch those numbers, as even the DetN feels it must. Wagoner's 64 percent rise "followed the posting of a $39 billion loss in 2007, a year when GM's stock price fell by about 19 percent, without adjusting for dividends." The DetN forgets to provide the same info for Ford. FYI FoMoCo lost $2.7b ($3.5b in NA) in '07 and their share price dropped 10.4 percent. Nardelli? Chrysler? That information is privileged…
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Robert: Compensation aside…do you really think Mulally is running Ford into the ground ?
It’s still to early to make a call on Mullaly but I think in the end he will have been a bargain.
Rick? A proven quantity and not a good one.
Bunter
It’s not so much if one or the other is or is not running the company into the ground as it is there were losses (financial and market share) while salaries were still high. That’s what I gathered from the article.
That said, I do believe Mulally has the right ideas and it seems that positive changes are being made at Ford. As for Wagoner, we know where that one is heading.
Mullaly is doing a much better job than Obtuse Wagoneer – he’s just getting his daily pay checks and golf outings with the Board of Bystanders.
If GM or Ford offered me $1 million a year to turn the company around I could do it. I don’t think it’s as difficult as these 2 guys make it sound. It would involve firing ALOT of executives that let things get bad and didn’t do anything about it.
I think there are 3 types of people in the world. positive, negative, and realists.
Ricky is always positive, and not living in reality. He says he’s not a quitter. A smart person knows when to quit. I repeat, he’s not a quitter.
Mullaly gets mixed reviews. There’s a distinct lack of leadership shown in the handling of the Focus, as well as the Model Name Shell Game (MKZ/Zpehy, Taurus/Five Hundred/Freestyle/X), but was early in his tenure, and they have been doing better, given how tight resources are.
Wagoner has had, what, a decade or more to fix things and has made it worse?
I’d say that makes all the difference. If Ford is still sucking wind years from now, that’s a different story.
another example of why I call him Red Ink Rick:
GM in Japan
From the 2007 Annual Meeting transcripts:
Mr. Dollinger: “And how many cars do we sell in Japan?”
Mr. Wagoner: “We’ve sold very few because, frankly, we’ve found over the years it’s a very difficult market to penetrate. In fact, I think if you look, you’ll find that less than 5 percent of the sales in Japan come from imports of any manufacturer. All manufacturers in the world outside Japan penetrate about 4 percent of the market, 4 or 5 – sorry, 3 percent of the market in Japan. So we’re frustrated, but we’re not unique.”
Mr. Dollinger: “Do we have a plan or a strategy to go into their market the way they’ve come into ours?”
Mr. Wagoner: “No. Actually we think our shareholders’ money is much better spent at this point – markets that are more open where we think we can succeed on a level playing field, like China where ten years ago we had about 0 percent market share and today we have 12 percent market share, making significant returns in the fastest growing market. So what we try to do is invest the shareholders’ money where we see the best chance for returns.”
What you have here is a management who is unable to devise a strategy for selling vehicles in the world’s second largest market. Guarantee you there are ways of not only cracking that market but also playing the cards here in the USA to an advantage based upon the Japanese reluctance to buy our products. Just another example of the absolutely FAILED management under Red Ink Rick. Oh poor us! We can’t sell cars in Japan, they won’t let us, they’re too tough for us. Wa, Wa, Wa. This guy has to go!
I wonder if there will be a UAW backlash over this. I sure would be royally pissed if I had to take a huge pay cut or pink slip while that ass banked millions off my suffering. Oh well his loyalty is the the shareholders and himself not the thousands of loyal employees. I always think of Enron when I picture Rick.
I just don’t understand. How much money does one person need??
Sure, being in such a high rank/power/responsibility should offer pay outside the range of most (99%) careers. But still… 8.4M dollars is enough for a family of 3-4 for 60+ years, WITHOUT budgeting. 14M in 1 year?! I don’t care HOW luxurious you live, there is a line that you cross when excess becomes insanity. We live in a world where minimum wage isn’t even enough for one person to live off of, yet the guys in suits at the top are pulling in enough to support a small country.
Why not let some of that money trickle down? Invest it in the employees. Or, better yet, how about future vehicles? Small cars? Fuel efficiency?
Maybe I’m naive, but I can’t see ANY position deserving more than 5M a year, IF that.
Both earn too much money to be reasonable.
While I am very impressed with Mulally and his past few years at Ford, I think compensation should be at least partially driven by performance, and as of yet, Ford’s not showing the improvement. It’s not to say Ford hasn’t been improving, but it hasn’t been to the point yet where Mulally’s take home pay should be lottery-winning scale.
If Mulally really wanted to earn points with the salaried staff in Dearborn — you know, the people who are looking at layoffs as part of a 15% salaried cost reduction task — he’d give back 15% of his bonus and encourage other officers, including Mark Fields, to do the same. I don’t expect this to happen, but it would certainly convince the troops that the “I got mine, now it’s your turn to sacrifice” culture had been replaced by something more positive.
Serious reform in executive compensation cannot be accomplished without reforming boards. Their evaluation and selection criteria for hiring CEOs are poor. Boards unreasonably restrict the talent pool they recruit from. And compensation committees have the power to reject excessive pay, but don’t. You can expect CEOs to make the best deal they can. Shareholders have to fire the boards and run a slate of better directors to solve this problem.
Phil
Politicians, similar to members of boards are like diapers – they need to be changed frequently.
Agree with Phil. The blame lies with the boards that are paying these ridiculous salaries. Neither CEO deserves the money they are getting, nor do the rest of the executives. Rick Waggoner’s is particularly offensive given where GM was when he started and where they are now. He is the equivalent of the GM who takes over the Yankees and runs them into the ground after being allowed the time to get “his guys” in place and put “his team” on the field. What happens to that GM in the sports world? Does he get a raise? No, he gets fired , and he gets fired at least five years sooner. Mulally is the GM that takes over the Reds, a team that is down now, has limited funds, but has a long history. After a couple of years, there are some good looking players on the field, and a hope for more rearends in the seats as well as a turn around in the standings. Does he get a raise? Unlikely, but possible, but he certainly gets a few more years to continue the rebuilding process.
@ Phil Ressler
And what’s your point? If the board and the shareholders do not have a problem with their compensation, people have no right to try and change it. People (and a certain presidential candidate) talk all the time about how the government needs to cap executive pay, which is absolutely disgusting and wrong. The ONLY way that executive pay should be capped is if the shareholders and the board think so. If you want to bitch about pay, buy some shares in GM or Ford and bring it up at the next shareholders meeting.
To me, there is no such thing as “excessive” pay. If someone is willing to pay you that amount for your work (or lack thereof) then more power to you. That’s what makes capitalism great to me. All the furor just seems to be fuel to the socializing of our society.
Justin is correct. If you are going to get paid in the stratosphere, there better be real big profits justifying it. Otherwise it’s a con.
Carshark has a point in a way. These ridiculous payouts ARE fueling socilism by showing that the market isn’t working correctly when it comes to C level pay. The tragedy is that socialism won’t hurt the CEO types one bit. May even give them more power.
There needs to be a lot less stock grants, and a lot more long term options for these guys. And I mean long term, like, vests 5 or 10 years after you leave.
I strongly disagree with government intervention to curb excessive CEO pay, but these guys have some serious chutzpah.
Mullaly, at least, I think is doing a good job and probably would be pulling in money for the company if he hadn’t started with the lot he did. Still, when you’ve already got gazillions of dollars and you’re asking others to sacrifice and you haven’t made the company jack, it is just plain evil to accept $22.7 million for one years work. And for what? To hoard away in some bank?
But Rick, Rick takes it to a whole nother level. Mullaly may be able to make the case that some company would pay him more, but Rick Wagoner, career GM guy, responsible for maybe the most spectacular decline in corporate history? Are the companies really lining up for him? How could he possibly take $15.7 million dollars??
Why do the shareholders stand for it? Its no wonder this system continues to spiral out of control. The people who are supposed to care are either completely ignorant about their role in system or they just hate money.
CarShark: Is Wagoner’s salary a result of capitalism? Do GM shareholders have a say in his pay? I think not. It’s actually a select few (Board of Directors) at the top who take care of each other. That sounds more like USSR Communism where the top leaders got special perks like holiday homes, nicer cars, better food, etc.
@ factotum
Actually, if you knew anything about corporate structure, you’d know that the shareholders DO directly influence how much executives get paid. At the most recent shareholder’s meeting, there was a proposal to tie Wagoner’s pay to GM’s performance; only 30ish percent of the shareholders voted for it.
@ Phil Ressler: And what’s your point? If the board and the shareholders do not have a problem with their compensation, people have no right to try and change it.
That’s pretty much it. The mechanism is already there: shareholders pressure the board for better behavior or change it. In a reasonably free capitalist system, under what pretense can the government cap executive pay? That’s stepping on a banana peel. If the shareholders are content to overpay the CEO, either they will be rewarded with returns that refute the charge of overcompensation, or they will suffer the consequences in lost value to their shares.
Phil
The article is a rant re CEO compensation. Doesn’t mean CEO’s are not overpaid. It’s always the same theme. The BOD and Stockholders have a say on CEO compensation. If they don’t is Congress supposed to control? Earmark junkies in charge? The weakness of this article is that the writer has an ax to grind otherwise he/she would state how much compensation is cash and how much is stock options. Stock options with performance and time restrictions.
Carshark has a point in a way. These ridiculous payouts ARE fueling socilism by showing that the market isn’t working correctly when it comes to C level pay. The tragedy is that socialism won’t hurt the CEO types one bit. May even give them more power.
You keep using that word. I do not think it means what you think it means.
This is capitalism in it’s purest form: the market dictates that CEOs are worth, and there’s obvious suck..I mean, companies willing to pay it. Supply and demand, supply and demand. Is it an example of the market gone wrong? Yep. The market isn’t perfect. When you have market bubbles and subsequent corrections, they’re brutal. And no, removing all government restrictions is _not_ the answer, because then the only chance at “market correction” is, quite literally, bloody.
Sometimes the market sucks–it’s not all pixie dust and roses, despite what Ayn Rand’s groupies want to think.
At some point, the SEC either steps in, or you get shareholder lawsuits that boil down to, in a few words:
“Dear GM Board Of Directors,
WTF. Seriously.
-Shareholders.
P.S. We’ll see you in court about that billions of dollars of vapourized equity thing. Real soon now. kthxbye!
question?.. if you run a company and it loses 39 billion dollars in one year and you get paid say 15 million, how much would you make if it as much as broke even?
Honestly, what difference would it really make if they recieved 25% of what they are paid?
Even if they cut their pay by 15% to show that they are leading willing to make the same sacrifice they are asking of the employees, it’s going to make very little difference if any.
Lee :
Honestly, what difference would it really make if they received 25% of what they are paid?
Even if they cut their pay by 15% to show that they are leading willing to make the same sacrifice they are asking of the employees, it’s going to make very little difference if any.
I agree that the effect would be more symbolic than material, but the symbolism would be enough to lift morale out of the tank.
A quick calculation reveals that 15% of Mulally’s bonus would cover a year’s salary and benefits for approximately 30 engineers. That’s 30 people who wouldn’t be thrown out of work in a dismal economy. For them this proposal would have a huge effect. The severance pay that the company saved by not laying these 30 people off would cover several more salaries, with the exact number depending on the length of service of the people who would have been laid off.
Many years ago there was a study showing that if the top guy was paid more than 20 times the lowest paid full time employee the company was in trouble. The employees stop caring.
Lets see: $50,000/year lowest paid employee (est.)X 20 = $1,000,000. (Fill in the correct pay for the lowest paid full time GM employee.)
But it looks like the head of GM is getting about twice too much in salary alone.
This applies to CEOs not to people who start their own companies.
You know, I can excuse Mulally’s salary. He was hired–headhunted–from another company. They wanted him, they bought him. Overpaying for Alan Mulally’s services is like paying a “market value adjustment” for a nice car; it may not be smart, but it was the going rate at the time.
Wagoner, on the other hand, was promoted–several times–within GM to his current position. Someone looked at his past career and actively decided (several times, again) that he was worth this. Paying for Rick Wagoner is like re-leasing a car that you’d leased for three years already, had serious problems with for it’s tenure. In other words, it’s a colossal failure of judgment.
@Droid800
Actually, sir, the recent vote was not for tying his pay to GM’s performance but his stock option awards. That’s only a portion of his overall compensation.
Another defeated proposal was to give shareholders an “advisory vote on executive compensation.” Whom would the vote advise? The BOD Executive Compensation Committee. Communists are fond of committees, too.
Who knows why it was defeated. Perhaps shareholders were influenced, their votes not counted correctly, or they felt an advisory vote wouldn’t matter. After all, one purpose of the GM Board is: “The Board has the responsibility to ensure that in good times, as well as difficult ones, management is capably executing its responsibilities.” That’s from GM.com. How long has Wagoner been CEO and what is track record?
Buickman,
At the risk of defending Wagoner (I know, heresy) Japan is extremely protectionist in nature, spirit and deed. Japan may not have explicit laws protecting its home market or home teams, but it’s understood implicitly that you make life very difficult for foreign competition.
Besides, what rational Japanese consumer would seriously pick a Chevy over a Toyota? We don’t even do that in Chevy’s home market.
I also agree that I see no evidence that Mulally is “running Ford into the ground.” And he came on too late to really affect the new Focus.
factotum: Actually, sir, the recent vote was not for tying his pay to GM’s performance but his stock option awards. That’s only a portion of his overall compensation.
Aren’t stock options a significant portion of the total pay package? It is my understanding that stock options, more than actual salary, are what’s really driving up executive pay.